The new Chairman of the Development Committee, Alejandro Foxky, Minister of Finance of Chile, was interviewed by the Editor o/Finance & Development recently. In a wide-ranging discussion, Mr. Foxky touched upon a number of key issues affecting development today and the work of the Development Committee
Here are edited excerpts from Mr. Foxky’s remarks:
The role of the Development Committee
Is the Development Committee just a “talking shop”? I don’t think so. The Committee tackles very important policy issues. Take the last meeting in April 1991. The Committee discussed and supported the work of the International Finance Corporation (IFC), one of the main institutions of the World Bank Group. If the IFC’s capital is doubled, from $1.3 to $2.6 billion, it will have very significant and positive implications for developing countries, because many private companies that have not been able to have access of IFC financing will then have access. This was one of many key issues discussed at the Spring meetings. Others included the impact of the Middle East crisis, poverty reduction, foreign direct investment in developing countries, the impact of industrial country policies on development, the Uruguay Round, the debt strategy, global environment issues, and the IMF quota increase.
In light of criticisms that the Committee agenda is overloaded, I think we need to focus much more on fewer issues. That would produce a more useful discussion.
One of the agreements reached in the Development Committee in April was to ask the Paris Club to further review and implement additional debt reduction schemes for the poorest countries, along the lines suggested by a number of creditor countries, including the so-called Trinidad terms.
Rather than talking indefinitely about the debt problems of the middle-income countries, we should be proposing ways for these countries to go back to the capital markets. We have to try and turn the debt situation around, from a problem to an opportunity—an opportunity to go back to the markets—because the economic situation of most middle-income countries today is better than it was ten years ago. Of course, this requires an appropriate response on the part of the commercial banks and support of the multilateral institutions.
The Chilean experience with negotiating our debts with the commercial banks has been good and may be worth emulating. We have made progress in our return to the voluntary capital markets. We issued, for example, bonds worth $320 million that were subscribed to by 20 of the largest banks at a competitive commercial rate.
Aid flows to needy regions
There is, no doubt, a demand for resources in the wake of the Middle East war. There is also potentially a demand for additional resources in Eastern Europe. But I think it would be a disaster if the international community did not realize that the problem of poverty in the African countries is as acute as it has ever been and that the better-off countries of the world have to show solidarity with those that are worse off. There were some very eloquent statements during the Spring 1991 meetings by several Ministers in this respect. So, I feel that the Committee has the mandate to actively promote additional aid flows for the African countries.
Reduction of military expenditures by the developing countries
As President Conable said, the World Bank cannot tell a country how much it should spend on the military. But, all these countries have to be able to manage their fiscal policy in a way consistent with macroeconomic equilibrium. If you are overspending in one area, say defense, then you are bound to have trouble, either because you will not then be spending enough on health, education, housing, or infrastructure—which should be major priorities for any government, or you will end up having a very high rate of inflation. The Development Committee communique speaks about the “possible reallocation of public expenditures, including excessive military expenditures.” We do not want a very militarized world. We want a world that is more humane, where governments are willing to invest more in people, to build their human capital.
Privatization and foreign investment in developing economies
We should avoid the temptation of simplifying solutions. There are many countries where you do not have yet the entrepreneurial capacity, spirit, and other prerequisites for effective privatization. One can be very mechanistic and say, “Lets privatize everything.” But then, who is going to run the companies? And how efficiently are they going to be run? In several countries, the state does have to play a key role, not only in providing social services but also in running some key companies because the professional talent resides more in the state than in the private sector. What has to be done in those cases is to stimulate, induce, and facilitate the process of emergence of an entrepreneurial class, so that it can take charge of the process of development and of the productive activities in the economy.
One of the emerging views on the development process is the acceptance of foreign investment as an important component of the development effort. We used to have many prejudices against foreign investment: that it would not be beneficial for the country because there would be too little reinvestment within the country; and that the profit remittances would debilitate the development effort, and so on. I do not see that anymore. I see that countries are, rather, competing for investment, and there is a general trend toward liberalization of rules concerning foreign investment. This is a positive trend.
Regional trading blocks and multilateralism
I do not believe that regional blocks run counter to multilateralism. The multilateral agencies should, in fact, encourage free trade agreements between countries to facilitate moves in the direction of a freer multilateral trading system, but not in the direction of forming blocks or economic fortresses. We might even think of a new conditionality—so to speak—in which the multilateral would finance, say, joint ventures between countries entering into a trade block, under the condition that the block would then work to move the economies of its members toward multilateral liberalization and not the other way around.
The Bank/IMF Development Committee
The Development Committee was established by the Boards of Governors of the World Bank and the International Monetary Fund in 1974 and is formally known as the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries. The Committee has a unique character: It is the only joint ministerial body of the Bretton Woods institutions, and it gives principal attention to issues affecting developing countries.
The Development Committee is an advisory body to the Boards of Governors of the Bank and the IMF. In practice, however, the Committee can exercise a significant degree of influence on the policies and operations of the Bretton Woods institutions that fall within the framework of its mandate.
The central mandate given the Committee at its creation was to consider the broad question of the transfer of real resources to developing countries, including international trade and payments, as well as foreign capital flows of all kinds. The Committee was intended to provide a comprehensive overview of international activities affecting development and to coordinate international efforts to deal with problems of development financing. It was requested to advise and report to the Boards of Governors on all aspects of the transfer of resources to developing countries and to suggest ways in which its recommendations might be implemented by appropriate parties, including the Bank and the IMF. In recent years, the Committee has focused on a broad array of important topics deriving from its mandate, ranging from the financing requirements of low-income countries in Sub-Saharan Africa to the funding of environmental initiatives and the impact of industrial countries’ policies on developing countries.
The Committee is composed of 22 finance and development ministers, who are also governors of the World Bank or IMF. In addition, its meetings are attended by 18 observers from regional development banks and other official international organizations. The President of the World Bank and the Managing Director of the IMF attend all meetings.
The Chairman of the Committee is selected from among its members and traditionally is a national of a developing country. The Committee also periodically elects an Executive Secretary, who traditionally is a national of an industrial country and is responsible for carrying out its work in the intervals between meetings, under the general direction of the Chairman.
The Committee meets twice a year, once at the time of the Bank/IMF Annual Meetings (in the fall) and once in the spring. Staffs of the two institutions regularly provide issues papers and progress reports on agenda items. In addition, the President of the Bank and the Managing Director of the IMF present reports providing their perspectives on the issues under consideration. A Steering Committee, composed of representatives of the two staffs and chaired by the Executive Secretary, meets regularly to coordinate institutional support for the Committee. The Executive Directors of the Bank and the IMF play an active role in reviewing and commenting upon all documentation prepared for Committee meetings, as well as in framing issues for their respective Ministers. The conclusions and recommendations of the Committee are contained in a formal communique issued at the end of each meeting.